Follow Canada Immigration and Canada's Economy: Beyond abundant oil and gas assets, energy giants now have a new target in their sights—the workforce! Energy companies currently carrying out projects in Canada have fully realized the country's growing shortage of talent, which may trigger a "war for talent" among these corporations.
Currently, oil sands expansion projects and LNG export terminals are driving up labor costs and project investment budgets in Canada. Data shows that Canada's unit labor cost rose by 0.2% quarter-on-quarter in the third quarter.
Oil companies use unconventional tactics to seek "talent"
In recent weeks, the Canadian government has approved energy projects for several companies, including Suncor Energy and Shell, which has indirectly boosted industrial investment sentiment while signaling a need for more labor and technical personnel. "Over the next 2-3 years, salaries and daily contract rates in Canada's oil and gas industry will trend sharply upward," said Jim Fearon, Vice President of the Canadian branch of British human resources firm Hays.
On December 6, the Canadian government gave the "green light" to Shell's Jack Pine oil sands expansion project in northern Alberta, allowing the company to expand its open-pit mine by one-third. It is expected to add 100,000 barrels to the current daily production of 300,000 barrels of crude oil. Shell revealed that, including the Carmon Creek oil sands project in northwestern Alberta approved this April, labor shortages have become prominent, and they do not rule out hiring an additional 1,000 workers in the future. "We will maximize the use of existing resources and labor to maintain cost stability as much as possible," the company stated.
The Kitimat LNG export terminal project, a partnership between U.S. oil giants Chevron and Apache on the west coast of Canada, has also encountered the challenge of rising labor costs, and Chevron intends to hire foreign workers temporarily for construction. It is understood that the project requires at least 4,000 skilled technicians, and as the project progresses, future labor demand will increase further. Chevron also noted that at least another 5,500 workers are needed to complete the pipeline project spanning the mountains of Western Canada.
Suncor Energy also intends to hire technical workers from abroad to alleviate the pressure of rising project costs. The company has even listed several methods to ensure projects do not exceed budgets, including limiting the workforce to between 5,000 and 5,500 people and developing detailed schedules to stagger construction times.
Chevron, Shell, and Malaysia's Petronas have long wanted a piece of the pie in the rapidly growing Asian market, hence their rush to lay out natural gas export projects in Canada. However, the issues at hand are no longer just the usual suspects like funding, regulation, and approval, but a lack of manpower.
To attract workers to remote, snowy regions, besides increasing salaries and benefits, energy companies are employing various tricks to increase incentives, including creating a warm, family-like atmosphere at workplaces and providing ample entertainment. To prevent a repeat of the Gorgon LNG project scenario, Chevron is particularly on edge; not only are they readjusting employee benefit indicators, but they also plan to provide more human-centric services, and are gearing up to join the "war for talent." It is reported that Chevron's Gorgon project saw a 20% cost overrun.
Chevron already plans to hire employees from overseas. To alleviate the loneliness of these "outsiders," the company plans to build an outdoor cinema capable of accommodating 200 people near the oil sands project, as well as a two-story gym and squash courts, while also equipping the site with ping-pong and foosball rooms.
In addition, Chevron will install fireplaces and high ceilings in the living areas to create a vacation-cabin feel and may even install a virtual indoor golf practice range to add to the entertainment options. Jillian Robinson Riddell, a spokesperson for Chevron Canada, said that Chevron currently holds the strongest position and has already begun designing camp facilities to accommodate 600 people.
Petronas is focusing on "food," stating it will improve dietary conditions to ensure balanced nutrition for workers while providing higher-quality meals.
Black Diamond, a company providing logistics services in Canada, pointed out that currently, more than 70,000 workers are stationed in Alberta's oil sands mining region, with the daily cost of living for each person rising to $200; it would be more accurate to call them hotels rather than dormitories.
Canada is not an "isolated case"
In fact, limited export markets and nearly saturated pipeline networks have caused investment costs for oil and gas in Western Canada to rise continuously, which has directly pushed up labor costs and further widened the price spread between Western Canadian crude and the U.S. benchmark crude; in November, the spread exceeded $37.
Dundee Capital Markets analysts believe that the shortage of technical labor in Canada is by no means an isolated case. With the booming global energy market and intensifying competition among industries, raw material and labor crises will become a headache for every country. Surveys show that oil sands companies generally expect Canadian labor costs to rise by 2%-3.5% in 2014.
Taking Australia as an example, the country is also struggling with talent shortages. Annual salaries for welders working on cryogenic equipment have reached 500,000 Australian dollars (approximately $454,000), which is more than three times the average annual salary of a U.S. lawyer. Currently, the average annual salary for long-term workers in Canada's oil and gas industry has risen from $112,800 in 2010 to $128,700 in 2012, 60% higher than the average annual salary of their American counterparts.
Currently, oil and gas drilling workers in Canada earn $42.01 per hour, whereas the same work in Texas, USA, only pays $29.50 per hour. Wage levels for everyone from plumbers to drillers are rising; if more oil sands and LNG projects are added in the future, wages will certainly only continue to climb. This is truly the era of the "blue-collar" worker.
Bloomberg estimates that if Canada has five LNG export projects scheduled for completion by 2021, at least 21,600 workers will be needed during the peak construction period, with a total investment of at least $44.8 billion. The Petroleum Human Resources Council of Canada expects that over the next 10 years, there will be 47,900 jobs in the Canadian oil and gas industry.
Maxim Sytchev, a senior analyst at Dundee Capital Markets, said: "LNG is a variable in the rapidly expanding energy industry. With the urgent desire for LNG exports in countries like the U.S. and Canada, this invisible pressure is best reflected in an increasingly tight labor market." He added that the growth rate of Canadian capital expenditure in 2014 reached 3%, increasing from $41.7 billion this year to $43 billion, which further increases the demand for equipment and labor.
"What we need to face is that even if we provide generous salaries, we may still not be able to hire people. There is not only a lack of professional talent, but even the basic labor force may be dwindling," sighed James West, a Canadian oil services and drilling analyst. "The shortage of skilled workers is one of the main reasons for energy company project budget overruns and construction delays."
It is reported that the Sturgeon Refinery, located north of Edmonton, the industrial heartland of Alberta, and built by the private Canadian company Northwest Upgrading, has seen its construction costs increase by nearly 50% to $8.5 billion. The Sturgeon Refinery, which began construction this September after eight years of preparation, is the first new large-scale refinery built on the North American continent in nearly 30 years, with an initial estimated construction cost of approximately $5.7 billion.
